Hewlett Packard Enterprise is projecting a strong outlook for the rest of the year — but the CEO says that the overall data center market slowdown is his 'biggest worry' (HPE)

hewlett packard enterprise HPE ceo antonio neri

Hewlett-Packard Enterprise CEO Antonio Neri says the tech giant is grappling with market uncertainty marked by longer sales cycles.
The tech giant's most recent financial results, announced on Thursday, were welcomed by Wall Street— especially after HPE raised its outlook.
But Wedbush's head of technology trading says the results underline HPE's struggles in the cloud.
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Hewlett Packard Enterprise boosted its profit outlook for the year, which is lifting its shares up some 1% on Friday. But CEO Antonio Neri says the tech giant is grappling with a more ambivalent corporate tech market.

HPE's stock was ahead 2% in afternoon trades. On Thursday, the tech giant raised its adjusted profit outlook for the current fiscal year to a range of $1.62 to $1.72 a share, up from a previous target of $1.56 to $1.66 a share.

"There is uncertainty there, and the uncertainty drives elongated sales cycles," he told Business Insider. "That's my biggest worry."

To his point: After seeing a strong uptick in 2018, corporate IT spending has hit pause, which was also highlighted in the recent earnings reports of chipmakers Intel and Nvidia, which make chips that power data centers and cloud platforms.

The good news, for now, is that Wall Street was happy with HPE's second-quarter report, announced on Thursday — which featured a dip in sales, but a higher earnings target for the year. It also comes in the wake of HPE's recent announcement that it intends to buy legendary supercomputing company Cray for $1.3 billion.

But on the call with analysts, Neri said that some HPE deals were not closing in the time the company expected.

"The longer the uncertainty goes, the worse it gets," Neri said on the call. "We continue to monitor to see what else we can do."

HPE's two main businesses posted lower sales. Its division focused on networking equipment, which includes products from its Aruba Networks subsidiary, saw revenue fall by 6% year-over-year, while its hybrid cloud business, which includes high performance computing systems, severs and data storage, reported a 4% drop.

Lingering uncertainty

HPE was the product of the 2015 split of Hewlett-Packard, the iconic Silicon Valley giant, which once sold everything from PCs and printers to servers, storage systems used for data centers and cloud platforms.

HPE got the data center and cloud stuff, and is slugging it out with longtime rivals such as IBM and Microsoft. But it has struggled in the battle for the cloud, where HPE is pushing a hybrid strategy — offering products and services that integrate its own servers and data center hardware with the major cloud computing platforms, including Amazon Web Services and Microsoft Azure. Revenue for that hybrid business slipped last quarter.

HPE reported gains in operating margin, which IDC President Crawford Del Prete "shows positive momentum around their strategy to go after higher margin pools." But the company's Aruba Networks business, which competes head-to-head with the likes of Cisco, clearly showed some weakness.

"I don't think there's something wrong with the Aruba product set per se, but they are not executing in the US," he told Business Insider. "This is clearly a sales issue."

'Cloud cannibalization'

Joel Kulina, head of technology trading at Wedbush, said HPE's sluggish revenue underscores the impact of the ongoing shift to the cloud.

Cloud computing has allowed companies to access computing power via the web, dramatically lowering their IT costs since they don't have to spend a fortune building their own data centers. This trend has hurt big tech companies selling high-margin computing gear, including HPE.

"These results are a reminder that last year's robust enterprise spend was an outlier," he told Business Insider. And that robust spend, he said, "will likely be followed by years of sluggishness/declining revenue trends for the enterprise server and storage market as cautious capex spend and cloud cannibalization weighs on enterprise budget allocation."

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